Secure Income pays £33.5m to extend leases with Merlin

Secure Income REIT announced on Thursday that, in return for a cash payment of £33.45m to Merlin Entertainments to be paid from its own resources, Merlin has agreed to extend its lease terms on Alton Towers, Thorpe Park, Warwick Castle and Heide Park in Germany by 35 years.

The AIM-traded real estate investment trust said that it would extend the leases to 55.5 years without break, from 20.5 years.

Rental payments under the leases would remain unchanged, although annual rent reviews of the UK assets Alton Towers, Thorpe Park and Warwick Castle would change from uncapped annual upwards-only RPI uplifts to annual reviews of CPI plus 0.5%, with a floor of 1% per annum and a maximum increase of 4% per annum.

The Heide Park lease in Germany would continue to have fixed reviews, increasing annually at 3.34% for the full 55.5 year term.

All of the leases were also updated to formalise the existing co-operation between Secure Income and Merlin in relation to environmental, social and governance factors, in particular the reporting and management of environmental matters.

Secure Income’s independent external valuer CBRE confirmed that the capital contribution paid represents no more than 50% of any marriage value created as a result of the lease extensions.

A formal independent valuation would be provided, along with the entire portfolio valuation as usual, at the company’s full year results in early March.

“This is a very meaningful deal for our business, resulting as it does in the weighted average unexpired lease term across the portfolio increasing from 19.2 years to 30.0 years, making our weighted average unexpired lease term the longest amongst our peers in the UK REIT sector,” said chairman Martin Moore.

“Merlin is a genuinely world class business which, through this initiative and particularly the new ESG elements incorporated in the agreements, has demonstrated its clear commitment to these unique, landmark sites.”

At 0923 GMT, shares in Secure Income REIT were up 0.73% at 415p.